What will Ulster Bank’s departure mean for our tracker mortgage?

In light of the present deal with PTSB, what should we do to protect our tracker mortgage with the imminent closure of Ulster Bank?

Mr J.M., email

It is a time of great uncertainty for Irish bank customers. Two major players are leaving the market and, even among those staying, there are branch closures and other new arrangements.

I've had several queries in recent days relating to the departure of both Ulster Bank and KBC and what it means for Irish customers – especially mortgage customers. I'll try to deal with the Ulster Bank ones here. I'll try to come back to KBC next week.

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The bottom line for Irish customers is that they will have less choice in banking and, where mortgages are concerned, they will be losing two of the more innovative and competitive players.

But it is important that people are aware both of their rights and the facts.

The news last week that Permanent TSB was going to purchase a chunk of Ulster Bank's loans – €7.6 billion in value – in a deal that will likely see Ulster Bank's UK parent take a significant stake in the Irish lender may have led you to believe that your mortgage will be heading for Permanent TSB (PTSB) but that's not the case.

Tracker loans

As my colleague Joe Brennan explained, the deal will see PTSB taking over a number of different types of loans including mortgages and small business lending. However, the mortgage book that PTSB is acquiring specifically excludes Ulster Bank's tracker loans.

Ulster's tracker loans look destined instead to end up at AIB. As Joe reported last Friday, AIB is in talks to buy Ulster's €6.5 billion tracker mortgage loan book. The main issue is likely to be price. With ECB rates at zero, AIB will presumably expect to get the loan book at a discount.

So what does all that mean for you?

Well, nothing really. Regardless of who buys your tracker mortgage, they are obliged to honour the terms of your loan. That means that, as long as you honour your payments, AIB (if that is who eventually buys the loan) will have to honour the terms of the agreement you initially signed with Ulster.

So, if your Ulster Bank mortgage contract says you pay an interest rate of no more than 50 basis point above the ECB rate – 0.5 of a percentage point – AIB, or whoever, cannot expand that margin.

You don’t need to do anything to protect your tracker: it is protected by the Central Bank and nothing that happens with the closure of Ulster Bank in Ireland will affect that.

Offset mortgage

Another reader, Mr B.O'C. has an offset mortgage with Ulster Bank. His experience proves my point on the Ulster Bank tracker. First Active was acquired by Ulster Bank in 2009, Ulster was obliged to honour the offset mortgage terms even though it did not offer that product itself at the time.

Mr B.O’C. has benefitted from that over the intervening 12 years without problem. But now, he’s wondering if the departure of Ulster Bank offers him an opportunity. His loan balance is €265,000 and he has €227,000 in the offset savings account. This means he is currently paying interest only on €38,000 of his mortgage loan.

He is considering offering the bank the €227,000 as full and final settlement of the loan and wonders is this an option and, if so, is it a good idea?

There’s nothing to stop you making the offer but the question is whether it will be enough to satisfy Ulster Bank – or Permanent TSB who will be taking over this loan.

You are looking to settle the mortgage at a discount of almost 15 per cent. Even allowing for the fact that PTSB is likely buying the loan book at some sort of discount, this might be a bit too far for them.

The other thing is that with all the work involved in breaking up the bank and selling parts of the business – including branches – to various buyers in complex deals and tight timeframes (the PTSB deal is pencilled to complete this year), will Ulster Bank even be in a position to consider your offer? My guess is that they will not entertain individual pitches for mortgage settlement at this time.

Even if they had the resources to manage it, wholesale individual settlements of loans might alter the dynamics of what PTSB thinks it is buying, putting the arrangement in jeopardy.

There’s no reason why you cannot make the pitch but I cannot see the upside for Ulster Bank in accepting it at this time.

Good idea?

Is it even a good idea for you? I think it is, as long as you do not have other, more expensive personal loans or credit card debt outstanding – at Ulster Bank of elsewhere – or foresee the need to borrow. Mortgage debt remains by far the cheapest borrowing for consumers.

Another reason to consider such a move is that the interest rate on your offset loan could be higher at PTSB, as consumer activist Brendan Burgess has warned, and that would cost you.

For a lot of people the prospect of an interest rate penalty – i.e. higher interest rates – at PTSB will make switching to another mortgage provider after the deal is done something they really need to consider. In your case, however, any move by you to switch provider would mean the end of the offset arrangement.

You would face interest on the full outstanding mortgage balance of €265,000 rather than just the €38,000 excess over your offset savings. That would see your annual interest bill jump more than fivefold – unless of course, you physically use some or all of that €227,000 in the offset account to pay down a chunk of the loan.

So, yes, certainly make the offer to Ulster but don’t be surprised if they fail to respond or reject it out of hand. There’s nothing to stop you making a similar offer to PTSB once the deal is done but again the likelihood is that it will not be accepted. At that point you need to crunch the numbers and see what makes sense for you.

Mortgage lenders

AIB is the largest player these days in the Irish mortgage market, even before these closures. It is followed by Bank of Ireland and, between them, they control more than 50 per cent of the market – close enough to 60 per cent in fact.

Permanent TSB comes next, with about 15 per cent of the market according to financial adviser Michael Dowling, though the bank reports it is doing better recently, with almost 18 per cent of the new mortgage market in the first quarter of this year.

Ulster Bank also has about 15 per cent of the market with KBC just above 10 per cent.

As of now, if you are looking for a loan of 80 per cent or more, AIB appears to be the most competitive, closely followed by Ulster Bank and Avant and then Permanent TSB. Bank of Ireland and AIB-owned EBS appear to be the least competitive.

For those with equity in their properties – a loan to value of 60 per cent or less – who are looking to switch will find Avant the most competitive, followed by AIB and Ulster Bank. Again, Bank of Ireland and EBS appear to lag.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into